Credit Cards are Good (If You Use Them Right)

RetireCoach.org provides 3 simple tips on how new credit consumers can avoid making simple easy mistakes when getting their new card

There seems to be a very common misconception among millennials that signing up for a credit card means your signing up for years of insurmountable debt. The truth is, most people use credits card completely incorrectly and from a standpoint of not knowing the potential consequences. Here a few simple pieces of advice to ensure you don’t end uo like one of the millions of people in the United States with uncontrollable credit card debt.

Tip 1 If you were not planning too, completely resist the urge to go make a large purchase immediately after getting your card
Even if your intent was to never make a large credit card purchase, the feeling of HAVING credit for the first time will automatically put your brain into a BUY NOW mode. This is a recurring psychological phenomena that is the natural response to an influx of new available resources in inexperienced consumers. The key is to remembering, credit is still YOUR money that you have to pay back. And although the consequences are little now, that $1,000 purchase could end up racking up $350 in additional charges interest if you hold onto the balance for 2 years when you are subject to interest. Conclusion – Do NOT make a large purchase without figuring out the consequences 2 years from now in a worst case scenario situation.

Tip 2NEVER make a big purchase with a card nearing it’s free lending period. Get your first card with the intent of not using it after the interest free period ends
Most credit cards will offer 0% APR on your outstanding balance for up to 15 months. A very good tip is to only use this card during this period with the intent of paying off as much of the balance before it ends. After this period, you apply for a new card with a similar introductory rate and the process begins. This is a great method and tip RC suggests you use to pay as little interest as possible on your credit card balances. Conclusion – Opening a new card after a free interest period ends is the best way to avoid paying unnecessary interest.

Tip 3NEVER let your credit card debt make up more than 12% of your annual Income

Most new creditors have no concept of what percentage they actually could safely hold in debt until it’s too late. In most of these cases, consumers acquire way too much debt. A good, safe role of thumb is that your credit card debit should make up no more than 12% of your annual income. That means if you make $40,000 gross annual income, the balance of all your credit cards combined should never exceed more than $4,800. Conclusion – Take your annual income after tax and multiply it by .12 on a calculator. NEVER let your balance exceed that.

Author: Paul Nowierski

My name is Paul Nowierski. I am an experienced Trade Specialist and Accountant working in the retirement industry. I hold my Bachelors in Science from Manhattan College in Accounting and continue to stay up to date and informed on cutting edge accounting and retirement planning advancements.

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